More on Those Confusing Overtime Exemptions

Kegler Brown E-mployment Alert

The Department of Labor has just issued two new opinion letters, the first to comment on the new overtime Regulations. One of the opinion letters dealt with the frequently misunderstood "salary" requirement and permissible deductions from a salary.

One of the requirements for most of the overtime exemptions is that the employee must be paid on a salary basis. With the exception of the eight situations allowed in the Regulations, no deductions can be made from the employee's regular salary payment. One of the exceptions is that it is permissible to deduct if the employee is absent for a full day or more (a) because of sickness or disability, and (b) the deduction is made in accordance with a plan or practice of providing compensation for earnings lost because of illness.

The Department's opinion letter concerned a Paid Time Off (PTO) plan. (PTO plans usually provide a set amount of paid time that employees can use when they are absent, whether the absence is vacation, illness, or personal.) The opinion letter stated that employers can reduce an exempt employee's salary payment, and make up the difference out of the PTO account, even if the absence is for less than a full day. In other words, the employer can charge the absence against the employee's accrued PTO account, for full or partial day absences, and pay the employee compensation for the week that is a combination of salary for time worked and PTO benefits for the remainder of the full salary payment. The PTO account can be reduced because of the payments without affecting the employee's exempt status.

However, it is important to remember that if the employee has used all of his or her accrued PTO time, the employee's salary can only be reduced where the employee is absent for full day increments (unless, of course, one of the other grounds for permissible deductions exists).